U.S. Ports - Preparing for Global Demand
A thriving container-shipping industry means increased logistical challenges for major American seaports.
Brian Knowles, Principal, Industrial Services, The Staubach Company and Timothy P. O'Rourke, Executive Vice President, Jones Lang LaSalle (Aug/Sep 06)
Every day dawns with a new discussion on globalization and how the United States must prepare for the immense market that is today's global economy. How will we compete? What are our pressure points for success? How are we prepared to meet this global invasion?
Unless you have been stuck in a shipping container in one of our many U.S. port districts, it's easy to see and hear the growing demands on our logistics infrastructure to support the increasing volume of imports. Globalization requires significantly increased coordination of road, rail, and sea transport. At recent industrial real estate conferences throughout the United States where national and regional developers share their experiences, ports were the topic of conversation in every group breakout session or sidebar. Whether it was security, channel depth, TEU (twenty-foot equivalent units, a standard measurement for shipping containers) capacity, on-dock or near-dock intermodal facilities, operational issues, or real estate, it was all port-related.
Today, most goods spend some time in a container as they are moved around the world. The container-shipping industry is booming, especially inbound from Asia. Giant container ports such as Hong Kong, Singapore, and Los Angeles/Long Beach have flourished thanks to rapid-loading equipment. In addition, container ships are getting larger, currently handling up to 10,000 TEUs. To put this figure in perspective, each 10,000-TEU ship will generate approximately 5,000 truck trips with each hauling a 40-foot container, assuming no dockside rail facilities. Larger container ships will cause greater peak demand for truck and rail access on already congested access routes from the ports.
Since the ports will always be our main point of entry for global goods, our ability to offload, stage, store and ship is pivotal. Every U.S. port is either re-evaluating its operational effectiveness, developing a master planning for expansion, improving infrastructure, or marketing itself as an alternative point of entry into the U.S. marketplace. As they plan for the future, a number of the largest U.S. ports are facing a shortage of developable land. Barriers include environmental concerns and other land uses that compete for the geographically desirable property adjacent to these busy waterways.
The Ports of Los Angeles and Long Beach share the San Pedro Bay in Southern California and are the number one- and two-ranked container ports in the United States, respectively. They handled a combined 14.2 million TEUs in 2005. This figure is projected to increase to 35 million TEUs by 2020, placing further pressure on a transportation network that already faces severe congestion.
With a total inventory of more than 1.3 billion square feet, the Southern California industrial market is the largest and most active in the nation. Los Angeles County has recorded some of the lowest warehouse vacancy rates in the nation, as a result of the growing trade imbalance with Asia. The ports of Southern California handle approximately 40 percent of the container volume in the country, creating a strong demand for both distribution buildings and land to handle the volume. Brownfield development, along with the redevelopment of functionally obsolete industrial and manufacturing facilities, has gained momentum as industrial land values near the port have exceeded $30 per square foot.
Developers in the Inland Empire area of Southern California completed more than 18 million square feet of warehouse/distribution space in 2005, increasing the existing inventory to approximately 325 million square feet. The lack of available land and the doubling of land prices in the Western Inland Empire have pushed warehouse development farther east and north, away from the ports. However, as transportation costs continue to increase and account for a larger share of the overall distribution model, companies are forced to reconsider this expansion away from the Los Angeles/Long Beach port area and the 20 million residents of Southern California.
New York/New Jersey
The Ports of New York and New Jersey (NY/NJ) are the third-most active in the United States. For the last several years, when importers lacked sufficient warehouse space within the port district, they found themselves setting up shop 30 miles south at the Exit 8A interchange of the New Jersey Turnpike. With 55 million square feet of mostly modern Class A warehouse space and growing, the Exit 8A interchange solution became home to many well known retail and consumer product-based companies.
A major pressure point for the NY/NJ ports has been container storage and the lack of available staging and warehouse area within the local confides of a fully developed sub-market. To help mitigate this backlog, the Port Authority has instituted increased "demurrage fees," which commence within 24 hours of the container touching the port soil. Along with escalating fuel costs, security delays and the need to offsite these containers quickly, companies are looking for opportunities within close proximity to port operations that also offer ample container/trailer storage. In developed markets like NY/NJ port area, this has become a major issue.
Recognizing corporate America's need to cut supply chain costs, developers and investors are investing in any property to prepare and get in front of this current and growing market demand. For example, at Exit 12 of the New Jersey Turnpike - 20 miles closer to the ports than Exit 8A - Prologis, Panattoni, and the Morris Companies all have different projects that involve remediation and major infrastructure investments. Even with the additional capital costs to bring these infill properties to market, the developers' confidence seems to lie in the continued "tsunami" of imports.